JPMorgan takes $600 mln hit on Fannie, Freddie
The JP Morgan and Chase headquarters is seen in New York January 30, 2008.
Credit: Reuters/Shannon Stapleton
NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) said the market value of its investments in Fannie Mae (FNM.N) and Freddie Mac (FRE.N) preferred stock has dropped by half to $600 million this quarter.
In a filing with regulators on Monday, the bank said the decline could affect its earnings. The precise amount of losses for the third quarter is difficult to determine, given the oscillations in the preferred shares' values, it said.
Investors have grown concerned over the fate of holders of Fannie and Freddie preferred stock because a possible bailout of the government-sponsored enterprises (GSE) could partly or wholly wipe out the value of these investments if bondholders are put first.
Fannie Mae and Freddie Mac have already seen their share values plummet amid the credit market crisis, which has triggered questions about whether they have enough capital.
Fannie shares have dropped nearly 90 percent this year, but closed up 3.8 percent at $5.19 on Monday. Freddie shares have fallen more than 90 percent this year but gained 17.1 percent to end at $3.29 a share, also on the New York Stock Exchange.
Other financial institutions, particularly smaller regional banks, could also be hit by losses on their holdings of GSE preferred stock, according to a report issued by Keefe, Bruyette and Woods on Monday, pinpointing Sovereign Bancorp SOV.N and Westamerica Bancorp (WABC.O), among others, as having "significant exposure."
KBW analyst Samuel Caldwell, in the report, said Gateway Financial Holdings Inc GBTS.O, Farmers Capital Bank (FFKT.O) and Midwest Banc Holdings Inc (MBHI.O) were also seen as having significant exposure to potential losses from holdings of Fannie and Freddie preferred stock, relative to tangible equity.
While JPMorgan's write-downs have been modest compared with other banks', the company said earlier this month it had lost $1.5 billion in July and the first third of August, after wider credit spreads and deteriorating liquidity hit the value of its mortgage-backed securities and loans.
(Reporting by Elinor Comlay and Dinesh Nair in Bangalore; additional reporting by Lilla Zuill; editing by John Wallace, Gary Hill)
